Plate ix in print

The Union

collective bargaining and countervailing power; the workers' combination as the answer to the employers', and the case where it costs no jobs.

Power on one side of a market summons its own corrective on the other; against the combination of employers the workers raise a combination of their own.

— the conceit of this plate, after John Kenneth Galbraith, 1952

The flagship plate left the wage as the prize in an unequal contest, with the employer holding the longer breath. The response of the weaker party is the oldest one there is, and the most natural: combine. If the masters' advantage is that they are few and can afford to wait, the workers' counter is to become, for the purpose of the bargain, also few — to act as one, and so to acquire the one thing the lone worker lacks, the ability to hold out. That combination is the union, and this plate asks what it does to a wage.

The first plate described an asymmetry; the law, for most of its history, wrote that asymmetry into itself. Combinations of workmen were treated as criminal conspiracy and suppressed, while the tacit combinations of employers — the understanding not to bid up wages — went unremarked and unpunished. The story of the union is in large part the story of that legal asymmetry being slowly, and against fierce resistance, undone: the criminal bar lifted, the right to organize and to bargain collectively recognized in law. The union is, in this light, less an intrusion into a free market than the belated correction of a market that had never been free for one of its two parties.1

1. In Britain the Combination Acts of 1799–1800 criminalized workers' associations and were repealed in 1824; in the United States the common-law conspiracy doctrine suppressed unions until the Wagner Act of 1935 guaranteed the right to organize and bargain collectively. The masters' tacit combinations, noted in the first plate, drew no comparable penalty — the bargaining asymmetry written into the law, and then partly written out.

The most general statement of the union's logic came from John Kenneth Galbraith, who gave it a name: countervailing power. In markets dominated by a few large firms, Galbraith argued, the restraint on power comes not from the textbook competition of many small rivals — which in such markets does not exist — but from the growth of organized power on the other side of the market: large buyers facing large sellers, and, in the labor market, strong unions arising to face strong employers. The discipline that competition was supposed to supply, and often could not, was supplied instead by this private balancing of one concentration against another. The union, on this view, is not an anomaly in the market system but one of the system's own correctives.2

2. John Kenneth Galbraith, American Capitalism: The Concept of Countervailing Power (1952). The thesis: in concentrated markets organized power on one side tends to call forth organized power on the other, substituting for the competition that is absent. Critics observed that countervailing power does not always arise where it is needed, and that the two organized sides may combine against third parties — consumers, taxpayers, the unorganized.
⁂

Against this stands the oldest objection to unions, and it must be given its due, because within its assumptions it is correct. In a competitive labor market — one where the wage already equals the marginal product, and no employer has power over it — a union that forces the wage above that level can only reduce employment. The firms, facing a higher wage, move back along their demand for labor and hire fewer workers; the union's members who keep their jobs gain, but at the expense of those who lose them, and of the outsiders never hired. On this reasoning the union does not create wealth but redistributes it, from the unlucky to the lucky, and destroys some in the process. The reasoning is sound. Its premise is that the market was competitive to begin with.3

3. The competitive case against unions: a wage pushed above the market-clearing level moves firms up their labor-demand curve and lowers employment, benefiting insiders at the expense of outsiders and creating a deadweight loss. This is valid — but only from a competitive baseline, the very baseline the eighth plate calls into question.

And the premise, the eighth plate argued, is generally false. Where the employer has monopsony power — where it was already holding employment down in order to hold the wage down — the union's effect is transformed, and transformed in a way that is genuinely surprising. A union that sets a wage floor between the monopsony wage and the competitive wage takes away the firm's reason to restrict hiring: the firm can no longer suppress the wage by employing fewer workers, since the wage is now fixed, so it employs more. Over that range, the wage rises and employment rises, together. The union does not price workers out of jobs; it undoes the monopsonist's deliberate scarcity, moving both wage and employment toward the levels a competitive market would have produced. The same mechanism that let a minimum wage raise employment under monopsony lets a union do so — the union being, in effect, a privately administered wage floor.4

4. The monopsony case for unions: a binding wage floor between the monopsony and competitive wages flattens the firm's marginal cost of labor over that range, removing the incentive to restrict hiring, so wage and employment rise together toward the competitive point. This is the efficiency case for collective bargaining, distinct from the purely distributive one, and it is the same result as the minimum-wage finding of the eighth plate.

What collective bargaining cannot do is fix a unique wage, and here the volume's oldest theme returns in its sharpest form. When a union that is the sole seller of labor faces an employer that is the sole buyer — a bilateral monopoly — theory determines a range but not a point. The wage will land somewhere between the most the employer would pay rather than endure a strike and the least the union would accept rather than call one; where exactly it falls depends on the relative bargaining power of the two sides, on the cost a stoppage imposes on each, on nerve and timing and the threat each can credibly make. Economics can draw the boundaries of the bargain; it cannot, from within, predict the outcome. The wage is, irreducibly, a negotiated quantity — which is to say, in part, a political one. This is Smith's indeterminate bargain of the first plate, now conducted between two organized armies rather than a master and a hungry man.5

5. Bilateral monopoly yields a determinate range but an indeterminate point — Edgeworth's indeterminacy. Modern theory pins the outcome only by adding assumptions about bargaining power and threat points, as in the Nash bargaining solution. The wage between a union and a monopsonist is thus settled by relative power and the cost of conflict, exactly as the first plate, The Bargain, described.
⁂

The record, read honestly, shows both the power and its limits. Union members earn a premium over comparable non-union workers — its precise size disputed, and muddied by the difficulty of comparing like with like — and unions compress the wage distribution among those they cover, narrowing the gap between the better- and worse-paid. They have also been in long retreat: private-sector union membership in the United States has fallen from roughly a third of workers at mid-century to under a tenth today, and the timing of that decline tracks, with suggestive closeness, the widening of inequality and the shrinking of labor's share of the national product. Whether the retreat caused those trends or merely accompanied them is contested; that it belongs in the same picture is not.6

6. The empirics: a union wage premium over comparable non-members (its magnitude debated and selection-prone); a compression of the covered wage distribution; and a long decline in private-sector unionization — from about a third of U.S. workers at mid-century to under a tenth now — whose timing tracks rising inequality and a falling labor share. The connection to distribution is the matter of the twelfth plate, The Share.

None of which makes the union a costless good, and the volume gains nothing by pretending it. Against a genuinely competitive employer, the union's gains do come at the expense of jobs and of those left outside; unions can harden the advantage of insiders, shelter the unproductive, and resist the changes that would raise output. The honest statement is conditional, and it is the hinge that joins this plate to the last: the case for the union is strongest exactly where the case for employer power is strongest. The more the wage measures what the employer can extract rather than what the worker contributes, the more the union measures the correction, and the less that correction costs in jobs. The two plates are one argument seen from the two sides of the table.

So the union returns the volume to its first page. The wage was always the outcome of a contest between parties who could hold out for unequal lengths of time; the union is simply the device by which the weaker party learns to wait. Whether a given wage is fair is not a question the marginal product can settle, because the wage was never only a measure of product. It was always, as well, a measure of who at the table could afford the silence — and the union is the workers' answer to a silence they could not, alone, afford.